A quick formula of when to use OTAs

A battle between direct bookings and OTAs (Online Travel Agents) will continue even after the virus situation calms down. I suspect that OTAs will put more pressure on room rates to get quick business to sustain themselves. It sounds like a bad deal (which it is) but there are a quick formula for hotels to consider when they should use OTAs.

One thing that we need to be on the same page first is that driving direct bookings is not free, far from it. Hotels have to pay for marketing resources as well as different types of ads, content creation, and display channels. This ‘cost of sales’ is a key determination of this post. However, direct bookings allow hotels to capture guest details for longer term marketing or loyalty investment.

  • If cost of sales is less than OTAs commission (< 20% on average) – no brainer, spend your marketing money to drive direct bookings.
  • If cost of sales equals to OTAs commission (about 20%) – still invest in driving direct bookings. You will get guest’s contact details and consent for your future marketing.
  • If cost of sales is greater than OTAs commission (> 20% on average) – shift your investment to OTAs is not a bad idea. What kinds of situations under this conditions?
    • Your hotel is in a highly saturated market. Customers just search to get the best deal. Investing in display ads might cost you up to 50%-60% range.
    • Your hotel is located in a low traffic market. It is likely that you have to spend a lot of money to just get customer’s attention that you exist.
    • Your hotel has to compete in the prime advertising space. if your hotel is located among big names with deep marketing pocket, OTAs could be your best friend.

There is no easy formula to work with OTAs. They do do a good job in many areas. They also invest heavily in technologies that many hotels cannot match. But, they suffer from the business environment change as well. We just need to be smart to learn and try new things.

Apivut

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